Question

If the Fed was worried about overheating (GDP growing too fast, inflationary pressures building), then the appropriate open market operation would be for the Fed to conduct open market purchases.
a) true
b) false

Answer 1

Answer:

The answer is false

Explanation:

Open market operations is a situation in which the Federal purchases and sells U.S. Treasury securities on the open market in order to regulate the supply of money in the economy.

If the Fed purchases securities in the open market, this increases the money supply in the economy. This is done when the economy is having low activities i.e economic hardship. Interest rate will be and if the Fed sells securities in the open market, it reduces the supply of money in the economy. This is done when the economy is overheating.